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Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आयकर अपीलीय अिधकरण “ए” �यायपीठ पुणे म� । IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, PUNE �ी डी. क�णाकरा राव, लेखा सद�य एवं �ी िवकास अव�थी, �याियक सद�य के सम� BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM आयकर अपील सं. / ITA No.650/PUN/2017 िनधा�रण वष� / Assessment Year : 2011-12 ACIT, Ahmednagar Circle, .......अपीलाथ� / Appellant Ahmednagar. बनाम / V/s. Sandesh Rajendra Lodha, Bunglow No.5-6, Maniknagar, Near Anand Rishi Hospital, Ahmednagar-414001. ……��यथ� / Respondent PAN : ABEPL6658E Revenue by : Mrs. Shabana Parveen Assessee by : Shri Prasad Bhandari सुनवाई क� तारीख / Date of Hearing : 29.07.2019 घोषणा क� तारीख / Date of Pronouncement : 27.08.2019 आदेश / ORDER PER D. KARUNAKARA RAO, AM: This appeal is filed by the Revenue against the order of the CIT(A)- 2, Pune dated 14.10.2016 for the assessment year 2011-12. 2. The grounds raised by the Revenue are as under :- “1. The order of the learned Commissioner of Income-tax (Appeals)-2 is contrary to law and to the facts and circumstances of the case. 2. The learned Commissioner of Income-tax(Appeals) erred in deleting the addition of Rs.5,03,61,119/- made by the AO u/s 2(22)(e) of the IT Act. 3. The learned Commissioner of Income-tax(Appeals) grossly erred, in ignoring the finding of facts by the AO that on verification of ledger of GEPL appearing in the books of GAEPL, that GAEPL had sold aluminum scrap to GEPL for which separate account was maintained. Therefore, the Loan / Advances given by GAEPL to GEPL through separate account cannot be considered as trade advances but Loan / Advances only.
2 ITA No.650/PUN/2017
The learned Commissioner of Income-tax(Appeals) grossly erred, in ignoring the fact that the finance transaction ledger was kept separately by the assessee which shows closing balance of GEPL as on 31/03/2011 at Rs.4,91,35,101/- in the books of GAEPL. In any case M/s. GAEPL has advanced loans to GEPL during the year under consideration aggregating to Rs.5,03,61,119/- which qualifies deemed dividend in the hands of the assessee i.e. Shri Sandesh R. Lodha. 5. For these and such other grounds as may be urged at the time of hearing, the order of the Ld. Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing Officer be restored. 6. The appellant craves to leave, to add, amend, alter or amend any or all the above ground of appeal.”
Briefly stated the relevant facts include that the assessee is a common shareholder and a director of M/s. Gal Aluminium Extraction Pvt. Ltd. (GAEPL) and M/s. Gal Extrusions Pvt. Ltd. (GEPL). The assessee hold shares in both the companies. Thus, the assessee is a beneficiary shareholder qua the transactions between the said two companies. Regarding commercial transactions between the companies, GAEPL is engaged in aluminium product/scrap. GAEPL sells the scrap i.e. trading transactions to the GEPL and sold the aluminium scrap worth Rs.2.25 crores during the year under consideration. Thus, both these companies have business transactions and maintained separate account in the books of account of the companies. The GAEPL shows the credit balance of Rs.4,91,35,101/- as on 31st March, 2011. The said amount is considered as a trade advance/inter-corporate deposits. Otherwise, the total payments made by the GAEPL to the GEPL works out to Rs.5,03,61,119/-. Ignoring the fact that the said amount is part of the trade advances/inter-corporate deposits and rejecting the assessee’s explanation, the Assessing Officer treated the same as deemed dividend
3 ITA No.650/PUN/2017 u/s 2(22)(e) of the Act. The argument of the assessee that the said provisions are not to be invoked in the case of a “beneficiary” shareholder was also rejected by the Assessing Officer. However, CIT(A), after considering the written submission of the assessee and relying on the Hon’ble Punjab & Haryana High Court’s judgement in the case of CIT vs. Suraj Dev Dada, 367 ITR 78 (P&H) and the Hon’ble Delhi High Court’s judgement in the case of CIT vs. Raj Kumar, 318 ITR 462 (Delhi), deleted the addition made by the Assessing Officer. The contents of para 4.2 onwards of the order of the CIT(A) (relevant parts are extracted in the later parts of this order) are relevant in this regard. 4. Aggrieved with the above decision of the CIT(A), the Revenue is in appeal before us with the above extracted grounds. 5. Before us, at the outset, ld. Counsel for the assessee relied heavily on the order of the CIT(A) and submitted that the order of the CIT(A) is reasoned one and the CIT(A) rightly deleted the addition made u/s 2(22)(e) of the Act. 6. On the other hand, ld. DR for the Revenue relied heavily on the order of the Assessing Officer and prayed for setting aside the order of the CIT(A).
4 ITA No.650/PUN/2017
We heard both the sides on the issue of (i) invoking the provisions of section 2(22)(e) of the Act in case of a beneficiary shareholder; and (ii) if the said provisions are rightly invoked in case where the payments are commercially made in the context of regular business transactions or in the case of inter-corporate deposits between the related companies. Considering the order of the CIT(A), we find that the CIT(A), as per discussion given in para 4.2 onwards in his order, rightly deleted the addition made by the Assessing Officer u/s 2(22)(e) of the Act. The contents of para 4.2.4 of the order of the CIT(A) are relevant and the same are extracted hereunder :- “4.2.4 In the light of aforesaid discussion on the facts of the case as well as decisions cited it is held that since there was regular business transaction between M/s GAEPL and GEPL during the year therefore the advances given by GAEPL to GEPL was nothing but in the nature of trade advances. Considering the ratio laid down by Hon’ble High Courts of Punjab & Haryana as well as Delhi as cited supra, I hold that trade advances would not fall within the ambit of the provision of sec.2(22)(e) of the I T Act. Accordingly, the addition made by the Assessing Officer by treating the amount of Rs.5,03,61,119/- as deemed dividend u/s 2(22)(e) of the I T Act is deleted.” 8. Further, we find that the assessee raised the argument before the lower authorities stating that the provisions of section 2(22)(e) of the Act is not invoked when the amounts transacted between the companies is an inter-corporate deposit and heavily relied on the decision of ITAT, Mumbai Bench in the case of Bombay Oil Industries Ltd. (2009) 28 SOT 383 (Mum.-Trib.). Relying on the Jurisdictional High Court’s judgement in the case of Universal Medicare Pvt. Ltd., 324 ITR 263 (Bom.) and the decision of ITAT, Mumbai Special Bench in the case of Bhaumik Colour
5 ITA No.650/PUN/2017 Pvt. Ltd., 313 ITR 146 (Mum-Trib.)(SB), it was argued that the said amount cannot be added in the hands of the “beneficiary” shareholder i.e. the assessee in this case. Considering the above submissions of the assessee, the CIT(A) granted relief to the assessee deleting the addition made u/s 2(22)(e) of the Act as per the discussion given in para 4.2.4 of his order. 9. Further, we find that there is no dispute on the existence of regular business transactions between the GAEPL and GEPL, where the assessee is a common shareholder. GAEPL gave trade advances to GEPL through maintaining of a separate bank account. The argument of assessee raised in ground no.3 of the appeal is relevant. As per the said ledger account between the GAEPL and GEPL, the closing balance as on 31.03.2011 is Rs.4,91,35,101/-. Considering the regular business nature between the GAEPL and GEPL, the CIT(A) granted relief to the assessee stating that the provisions of section 2(22)(e) of the Act has no application in such cases. It is not the case of the Revenue that there is any dispute on the basic facts narrated above. It is a case of commercial transactions and the GAEPL sold aluminium scrap to GEPL worth Rs.2.25 crores. Considering the commercial nexus between the companies, the credit balance of Rs.4,91,35,101/- paid to GEPL as on inter-corporate deposit also is outside the scope of deemed dividend u/s 2(22)(e) of the Act. The inter-corporate deposit is neither an advance nor a loan. Further, the assessee is merely a beneficial shareholder.
6 ITA No.650/PUN/2017 10. Further, we find that it is a case of taxing the beneficiary shareholder, which is not permitted in law in view of the decision of the ITAT, Mumbai Special Bench in the case of Bhaumik Colour Pvt. Ltd. (supra) and Jurisdictional High Court’s judgement in the case of Universal Medicare Pvt. Ltd. (supra). 11. Considering the above, we find the order of the CIT(A) is fair and reasonable on this issue and it does not call for any interference. Thus, the relevant grounds raised by the Revenue are dismissed. 12. In the result, the appeal of the Revenue is dismissed. Order pronounced on 27th day of August, 2019. Sd/- Sd/- (िवकास अव�थी /VIKAS AWASTHY) (डी. क�णाकरा राव/D. KARUNAKARA RAO) �याियक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 27th August, 2019. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-2, Pune. 4. The Pr.CCIT, Pune. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.